Short-term rental firm Sonder records lease with Jeff Sutton for hotel project in Garment District

Short-term rental company Sonder Holdings through the entity Sonder Hospitality USA Inc. signed a 15-year lease with Jeff Sutton and his Wharton Properties through the entity 29 West 34 Owner LLC for the midblock 363-unit hotel project at 25-29 West 34th Street in Garment District, Manhattan. Sonder is “paying under $300 million” for the 15-year lease to occupy the majority of the building, according to the Commercial Observer, which first reported on this transaction in November 2021. PincusCo first reported on the hotel project in May 2021.

The deal closed on June 30, 2021 and was recorded on April 21, 2022.
The signatory for Jeff Sutton and Wharton Properties was Jeff Sutton. The signatory for Sonder Holdings was Phil Rothenberg. This is for a 15-year lease signed June 30, 2021 with two 5-year extension options. Sutton filed plans in May 2021 to build a 176,375-square-foot, 363-unit hotel at 29 West 34th Street in the Garment District.

The property

The 25-29 West 34th Street parcel has frontage of 25 feet and is 98 feet deep with a total lot size of 2,469 square feet. The zoning is C5-3 which allows for up to 15 times floor area ratio (FAR) for commercial and up to 10 times FAR for residential with inclusionary housing. The city-designated market value for the property in 2022 is $38.5 million.

Violations and lawsuits

There were no lawsuits or bankruptcies filed against the property since September of 2020. In addition, according to city public data, the property has received one DOB violation and $1,000 in OATH penalties in the last year.

Development

For the tax lot building, it received its initial certificate of occupancy on April 17, 2013. On these lots, there is one active new building construction project for a 363-unit, 173,835-square-foot R-1 building. The project was filed by Wharton Properties with plans filed April 29, 2021 and it has not been permitted yet.

The neighborhood

In Garment District, the majority, or 69 percent of the 53 million square feet of commercial built space are office buildings, with hotel buildings next occupying 12 percent of the space. In sales, Garment District has 4.1 times the average sales volume among other neighborhoods with $1.1 billion in sales volume in the last two years and is the 9th highest in Manhattan. For development, Garment District has had very little major development activity relative to other neighborhoods.It had 561,900 square feet of commercial and multi-family construction under development in the last two years, which represents 1 percent of the neighborhood’s built space. There were two pre-foreclosure suit filed among other retail buildings in the past 12 months.

The block

On this tax block, PincusCo has identified the owners of 13 of the 27 commercial properties representing 1,077,465 square feet of the 1,753,785 square feet. The largest owner is SL Green Realty, followed by IceCap Group and then BLDG Management. There is one active new building construction project totaling 173,835 square feet. It is a 363-unit, 173,835-square-foot R-1 building developed by Andrew Lester with plans filed April 29, 2021 and it has not been permitted yet.

The majority, or 90 percent of the 1.5 million square feet of built space are office buildings, with hotel buildings next occupying 4 percent of the space.

Surrounding

Within a 400-foot radius of 25-29 West 34th Street, PincusCo identified 10 commercial real estate items of interests occurred over the past 24 months.
Of those 10 items, two were sales above $5 million totaling $101.8 million. The most recent of the two was Denis Xhari and Vlash Pepa which bought the 55,498-square-foot, three-unit hotel (H3) on 40 West 35th Street for $33.9 million from Meadow Partners on March 31, 2022.
Of those 10 items, eight were loans above $5 million totaling $337 million. The most recent of the eight was Denis Xhari and Vlash Pepa which borrowed $20 million from Tideway Capital Group secured by the 55,498-square-foot, three-unit hotel (H3) on 40 West 35th Street on March 31, 2022.

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